state of the industry update andhow thriving companies succeed
TRANSCRIPT
© 2012 McGladrey LLP. All Rights Reserved.© 2014 McGladrey LLP. All Rights Reserved.© 2012 McGladrey LLP. All Rights Reserved.© 2014 McGladrey LLP. All Rights Reserved.
2014 McGladrey Manufacturing &
Distribution Monitor
© 2013 McGladrey LLP. All Rights Reserved.
September 10, 2014
Global Automation and Manufacturing Summit State of the Industry Update and
How Thriving Companies Succeed
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About McGladrey
Founded in 1926
Largest provider of accounting, tax and business consulting services in the U.S. focused on the middle market
Serve more than 8,000 mid-size manufacturers and distributors across the country
U.S.: 75 offices, with 6,700 professionals
Worldwide: Offices in 100 countries, with 32,000 professionals
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2012 2013 2014
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%Real Gross Domestic Product
(Chained 2005 Dollars)
Real GDP Forecast:↑ 1.9% (2013)↑ 1.6% (2014)↑ 3.0% (2015)
Source: Bureau of Economic Analysis, NAM calculations using Moody’s Analytics simulation model
Real GDP
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Mining
Utilities
Wholesale Trade
Finance, Insurance, Real Estate, Rental, and Leasing
Professional and Business Services
Arts, Entertainment, Recreation, Accommodation, and Food Services
Retail Trade
Government
Other Services, Except Government
Educational Services, Health Care, and Social Assistance
Information
Construction
Transportation and Warehousing
Agriculture, Forestry, Fishing, and Hunting
Manufacturing
$0.46
$0.54
$0.54
$0.57
$0.62
$0.63
$0.66
$0.69
$0.69
$0.72
$0.80
$0.86
$0.99
$1.11
$1.32
Indirect Economic Activity Generated by $1 of Sector GDP
Source: Bureau of Economic Analysis, 2012 Annual Input-Output Tables
Manufacturing’s multiplier effect
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2008 2009 2010 2011 2012 2013 20146
7
8
9
10
11
12
13
14
4%
5%
6%
7%
8%
9%
10%
11%
Durable Goods Nondurable Goods Unemployment Rate
Millionsof Workers
Unemployment Rate
Source: Bureau of Labor Statistics
Employment situation
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Furniture and related productsPetroleum and coal products
ChemicalsNonmetallic mineral products
Miscellaneous durable goods manufacturingFood manufacturing
Electrical equipment and appliancesWood products
Miscellaneous nondurable goods manufacturingPlastics and rubber products
Primary metalsMachinery
Fabricated metal productsTransportation equipment
2.52.5
7.98.79.9
18.421.021.425.1
52.352.7
151.9194.2
231.9
Manufacturing Sectors with the Largest Net Employment Gains YTD, in Thousands of
Employees(December 2009 to June 2014)
Source: Bureau of Labor Statistics
Largest net employee gains
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LouisianaNorth Carolina
MissouriColorado
UtahIllinois
OregonFlorida
IowaGeorgia
KentuckyTennesseeMinnesota
South CarolinaWashington
WisconsinOhio
IndianaTexas
Michigan
9.111.312.612.612.713.815.215.917.318.8
20.724.525.626.7
29.441.0
63.066.3
76.8107.4
December 2009 to June 2014(in Thousands of Workers)
Source: Bureau of Labor Statistics
Top 20 states for manufacturing job creation
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Manufacturing Jobs Offer Greater Compensation
9
Manufacturing Non-Manufactur-ing
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
Wages and Salaries Benefits
Ave
rage
Com
pens
atio
n in
Dol
lars
per
Ful
l-Tim
e E
quiv
alen
t Wor
ker,
2011
Source(s): U.S. Bureau of Economic Analysis and MAPI
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Jan-13
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-14
Feb Mar Apr May Jun45
50
55
60Global Markit Manufacturing
Purchasing Managers’ Indices
Global U.S. China Eurozone
Source: Markit
Global Markit
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5.0%
10.0%
7.1%
2.5%
0.5%
13.3%
5.7%
0.7%
5.1%
1.4%
6.8%
-0.1%
-2.0%
2.4%
-0.4%
5.7%
2.0%
4.8% 4.7%
-6.7%
1.1%
Percent Growth of Manufactured Goods Exports, 2012–2014
2012 2013 2014 YTD
Source: U.S. Department of Commerce
Export growth
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2005 2006 2007 2008 2009 2010 2011 2012 2013 201420
30
40
50
60
70
80
90
100
110
120
70
75
80
85
90
95
100
105
110
University of Michigan Consumer ConfidenceConference Board Consumer Confidence
Consumer Confidence Indices NFIB Small Business Index
Source: University of Michigan/Thomson Reuters, Conference Board, National Federation of Independent Business
Monthly business and consumer sentiment surveys
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2005 2006 2007 2008 2009 2010 2011 2012 2013 20148
10
12
14
16
18
20
22
(in Millions of Units)
Source: Bureau of Economic Analysis
Total vehicle sales
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2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
500
1,000
1,500
2,000
2,500
0
10
20
30
40
50
60
70
80
Housing Starts Housing PermitsNAHB Housing Market Index
NAHB Housing Market IndexHousing Starts, Permits (in thousands of units)
Source: U.S. Census Bureau, National Association of Home Builders
Housing market situation
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The 2014 Manufacturing & Distribution Monitor
Monitor survey has been conducted for 9 consecutive years
Fielded: Spring 2014
Survey participants: 1,147 total- 80%: United States- 20%: Brazil, Canada, France,
Germany, Mexico and the United Kingdom
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2014 Monitor highlights
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How do so many companies thrive where others only hold steady or decline?
2009 2010 2011 2012 2013 20140%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
40%
10%3% 5% 7% 5%
52%
66%
53%56%
61% 60%
9%24%
45% 39%31% 36%
Declining Holding own Thriving
Six year business conditions
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The strategic investments of thriving companies
InfrastructureInformation technology, equipment and machinery, R&D
External challenges
Regulations and compliance
ProcessContinuous improvement
GrowthMergers and acquisitions,
innovation
Supply chainRelationships and service
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Infrastructure:Establishing the foundation, continued
Information technology Equipment and machinery Research and development
17%
11%
6%
10%9%
5%
7% 7%
3%
Thriving Holding steady Declining
Investment increases in next 12 monthsAverage, by business condition
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Infrastructure:Establishing the foundation, continued
Upgrading technology in-frastructure
Upgrading technology software
Investing in mobility
23% 24%
45%
13% 14%
40%
7% 7%
32%
Thriving Holding steady Declining
Investment increases in next 12 monthsAverage, by business condition
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21
11%
48%
34%
6%
1%
1=Not at risk 2 3 4 5 = Very much at risk
Infrastructure:Establishing the foundation, continued
Awareness of information and data risk
59%Believe they are at little or not risk
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22
Growth:Thriving companies grow through strategic M&A activities
Reasons for M&A activity by thriving companies
Create stronger position with suppliers
Expand distribution channels
Create cost synergies/improve margins
Improve current market position
Expand product lines to reach new customers
20%
20%
33%
35%
37%
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Growth:Thriving companies grow through innovation
Thriving companies continually ask “What’s next?”
Thomas Alva Edison (center) and his close team members
“Leaders today don’t have to have all the answers. But …they need to ask ‘what’s next?’ in provocative ways.”
Sarah Miller CaldicottPower Patterns of Innovation
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Continuous improvement: Thriving companies regularly seek new ways to improve
Operations- Productivity increases due to:
• Process improvements• Improved labor utilization• Improved equipment utilization
Workforce- Improved company performance due to:
• Leadership and management development• Workforce education and training
Information technology- Improve customer satisfaction - Minimize corporate risks
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Supply chain:Working up and down the supply chain
Decisions are made to address the needs and values of the end user.
“Begin with the end in mind.”
Stephen R. Covey, The 7 Habits of Highly Effective People
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Supply chain:Companies are finding reasons for on shoring operations
Closer to customers and markets with better lead times
Improve logistics costs
Seek less costly and burdensome regulatory environment
Reduce inventory carrying costs
Decrease supply-chain cycle times
Improve product and process quality
Intellectual property
Energy costs
Top circumstances for bringing operations back home:
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27
Supply chain:Brand in the U.S.A.
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28
External challenges: “How will the following external issues affect your company’s growth in the next 12 months?”
Availability of skilled workforce
Competition from other companies
Government regulations
Material and components pricing
Taxation
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29
External challenges:Managing external pressures to lessen their impact
Impact of external factors by business condition
Availability of skilled work-force
Material and components pricing
Competition from other companies
Government regulations
Taxation
41%
72%
80%
76%
66%
52%
59%
70%
71%
62%
46%
48%
50%
56%
57%
Thriving Holding steady Declining
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External challenges:Managing external pressures to lessen their impact
Scenarios resulting from the ACA
Lay off workers to offset the costs of ACA compliance
Change some workers from full-time to part-time to reduce ACA-related costs
Reduce wages to offset the costs of ACA compliance
Implement wellness programs to encourage healthier lifestyles
Provide health plans that include incentives for healthy living
4%
5%
5%
45%
46%
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60 65 70 75 80 85 90 95 2000 05 10 1414%
16%
18%
20%
22%
24%
26%
28%
Federal Government Receipts & Expen-ditures as a % of Gross Domestic Prod-
uct, 1960 to Present
Federal Receipts as a % of GDP Federal Expenditures as a % of GDP
22.7%
18.4%
Source: Bureau of Economic Analysis
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Benefits: Strategic investments lead to improved company performance…
Lead generation/sales practices
Leadership and management development
Marketing strategy and execution
Product/process innovation
Operations and practice capability
0% 10% 20% 30% 40% 50% 60% 70% 80%
Thriving Holding steady Declining
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33
Benefits:…and IT environment effectiveness in particular
By business condition
Improve customer satisfaction
0% 10% 20% 30% 40%
21%
25%
33%
Thriving Holding steady Declining
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34
Benefits:Thriving companies expect sales and workforce growth
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35
What are thriving companies doing?
• Making investments in information technology, equipment, workforce personnel development, marketing and other areas.
• Growing through strategic acquisitions.
• Staying innovation-focused and utilizing continuous improvement techniques.
• Working with suppliers and enhancing their value proposition for customers.
• Managing external challenges, looking for opportunities to minimize the financial impact of government regulations and taxation.
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The 2014 Manufacturing & Distribution Monitor reports
Manufacturing and distribution Industry sector reports:
- Distribution- Consumer products industry- Food & beverage industry
Geographic reports:- Mexico- Brazil- U.S. state (11)
Customized reports:- Participants- Associations
36
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Questions?
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38
Karen L. KurekNational Industrial Products Practice Leader McGladrey [email protected](312) 634- 3920
Contact me
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For a copy of the full 2014 McGladrey Monitor report —as well as state, industry sector and country and reports—
please visit our website at www.mcgladrey.com
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This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.
McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2014 McGladrey LLP. All Rights Reserved.
This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2013 McGladrey LLP. All Rights Reserved.